Tuesday, Feb 3, 2015, 12:40 pm

Whether in Greece or the U.S., It’s Clear: Austerity Doesn’t Work

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Throughout the Europe and the U.S., elites have called for austerity for thee, but not for me. But the example of Syriza is Greece is showing that democracy can help cure austerity. (infomatique / Flickr)

The people of Greece rebelled last week against the perverse notion that they should continue to endure biting austerity in a vain attempt to cure a condition that they are not solely responsible for creating.

Sounds familiar, right? It’s like American workers forced to suffer through a recession that they didn’t cause, a recession that was, in fact, a result of banks’ reckless risk-taking.

When bets by big banks worldwide failed spectacularly in 2008, markets imploded and economies collapsed. Bailed-out banks, the wealthiest 1 percent and export-based economies like China and Germany quickly recovered. But workers struggled long-term. Austerity imposed on them was a big part of the reason. Workers were the victims of austerity’s slashed public services, wages and jobs. Those demanding austerity—the 1 percent—and those imposing it—conservative politicians—escaped its bitter effects with shields of cash. Austerity was not for them. It was for those without big bankrolls. That would be bad enough if austerity worked. But, as Greece illustrates horribly, it does not.

Its echoes can be heard in the harangues of American Republicans. They threw a hissy fit when in the first year of the Obama Presidency, he persuaded a Democratic-majority Congress to approve stimulus spending.

They’re intent on making middle class and working poor Americans suffer. Republican politicians won’t feel the pain. They’ve got their political jobs and their government-paid health insurance and pensions. Their campaign benefactors, the wealthy 1 percent, insulate themselves with millions stashed in tax-evading offshore bank accounts and with other assets. For example, a former hedge fund director told congregants at the World Economic Forum’s Davos meeting earlier this month that his billionaire crony private jet owners are buying security for themselves with airstrips and farms in secluded places like New Zealand.

It’s austerity for the other guy.

The thing is, though, austerity doesn’t work. It damages economies. It doesn’t fix them like stimulus does. Austerity shrank the Greek economy by 25 percent. So even though the government cut spending and raised taxes, it received less revenue from the higher levies in its shriveled economy, making the loan payments more difficult.

This is very similar to Americans forced to bail out their banks. Lenders reaped the profits when risk-taking worked; suckers also known as taxpayers got stuck with the bills when risk-taking failed.

After six years of austerity and deep recession, the people of Greece balked. Last week, they elected as their Prime Minister Alexis Tsipras, a leader of the Syriza party, who promised to abandon austerity, which he calls "fiscal waterboarding."

He promised to demand the creditors write down the loans by half and to use the savings to increase government spending, which will stimulate the Greek economy and employment. That would raise revenues from taxes, thus easing loan repayment and providing funds for additional stimulus.

Tsipras has support from political upstarts in other austerity-shattered countries. At one of his last campaign rallies, he was joined by Pablo Iglesias, whose far-left political movement in Spain called the Podemos party also rejects austerity. Podemos victories last year denied traditional Spanish parties majority votes in May’s European parliamentary elections for the first time in 40 years. And polls show the one-year-old party already has 20 percent support and is gaining.

Beyond being a failed policy, austerity doesn’t sell well. The majority, which suffers from it, doesn’t want it. They’re unwilling to lose their jobs, their health insurance, their homes, their pensions, their savings, their children’s futures—their everything—to bail out banks, Wall Street, the rich, all those who never feel a pinch—or even a twinge of sympathy. Let alone guilt.

When the majority gets an actual chance to vote on austerity, it goes down. As it did in Greece. Democracy cures austerity.

Leo Gerard is the president of the United Steelworkers International union, part of the AFL-CIO. Gerard, the second Canadian to lead the union, started working at Inco's nickel smelter in Sudbury, Ontario at age 18. For more information about Gerard, visit usw.org.

If Greece didn't want to have austerity imposed, they should have repaid the money they borrowed. If they actually expected to end up getting it for free, they lied when they borrowed it.

Posted by Cicero on 2015-02-10 20:03:58

In almost every graph or chart comparing the countries in the EU, Germany comes out performing the best. Controlling their debt, saving, investing and producing. They have had a more austere economy than the others. Perhaps a bit of austerity does work. Austerity isn't as pleasant as non-austerity...of course, but it may be necessary to produce the kinds of changes that take a non-performing economy and make it perform better. Continuing to loan them money (which perhaps the banks shouldn't have done in the first place...but why continue) isn't going to produce the changes necessary. Criticizing the German approach and asking them to bail you out seems a bit strange.

Posted by econ1 on 2015-02-05 20:00:09

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